The differences between an operational expense and an administrative expense is that operational expenses cover the costs to produce products and services for clients and administrative expenses cover overall general expenses that are not necessarily tied to production or a specific department within the company.
Common operating expenses often include costs associated with advertising, sales and overall manufacturing. For example, the fees for rent and insurance on a building where production is held often fall under the category of operational expenses. Equipment needed to produce services or products qualify as operational expenses, too.
General costs such as office supplies, telephone bills and postage are considered to be administrative expenses. Compensation for employees who provide overall support for the company that is not tied to a specific department are considered administrative expenses. For example, a receptionist or secretary who provides support for multiple departments is paid under administrative expenses. Administrative expenses may also include legal and professional fees, insurance depreciation costs, and salaries of executives and officers.
When companies find that budget cuts are necessary, administrative expenses are typically the first to experience cutbacks. Executives evaluate necessary operational and administrative expenses. They tend to put more money and effort toward operating expenses because the profits derive from sales of products and services. Although administrative expenses help keep the business running, companies often look to minimize costs within areas that do not affect production or productivity. However, if the costs of producing goods that are not selling become excessive, cutbacks may be made in operating expenses to focus more financial interest in producing products and services that are marketable and in demand from consumers.